Advertisement

ECB policymakers agree to 'remain firm' in executing bond-buy plan - minutes

By Paul Carrel

FRANKFURT (Reuters) - European Central Bank policymakers agreed at their March meeting to "remain firm" in implementing their large-scale asset-purchase programme, even though the economic outlook is improving, records published on Thursday showed.

The Governing Council, at its policy meeting on March 5, said it would begin printing money to buy bonds -- so-called quantitative easing (QE) -- on the following Monday (March 9). It also presented updated forecasts from its staff economists that gave a more rosy outlook, but policymakers agreed that did not reduce the need for QE.

"The March 2015 projections should ... not be interpreted as suggesting that the latest monetary policy measures were less necessary," the accounts of the meeting read.

"Hence, it was essential for the Governing Council to remain firm, implementing the measures adopted without hesitation until the objectives were reached, in line with its commitment to keep this policy in place for as long as needed," the accounts read.

The comments are significant because just three weeks into the 19-month bond-buying programme, analysts have begun speculating that the ECB may throttle back the pace of purchases early, possibly even this year.

The ECB left its main interest rate at a record low just above zero at the off-base March meeting in Cyprus. It also lifted its growth forecast for the euro zone economy to 1.5 percent for this year, from the 1.0 percent it predicted in December.

ECB staff foresaw euro zone inflation rising from zero percent this year to 1.8 percent in 2017, which would put it in line with the bank's target of close to but below 2 percent.

"It was affirmed" at the March 5 meeting that the ECB's deposit rate of -20 basis points, which sees it effectively charge banks for holding their money overnight, "should be regarded by the Governing Council as the effective lower bound", the minutes read.

The minutes of the meeting give a bare-bones account of the discussion, but they do provide a glimpse of the pressure and tension involved in ECB decision-making, which seeks to forge consensus among 19 different countries from Germany to Greece.

"REMAIN CAUTIOUS"

Under its QE plan, the ECB aims to purchase 60 billion euros a month of mainly sovereign bonds until September 2016, or beyond that if needed to see a sustained adjustment in the inflation path back towards its target of just under 2 percent.

ECB chief economist Peter Praet, who gave a presentation at the beginning of the meeting, saw no need for the Governing Council to reconsider any of the parameters around the programme, the minutes showed.

Council members "generally shared the assessment" that positive effects from the Jan. 22 decision to launch QE, along with previous policy stimulus, could already be seen in the easing of financial market conditions and lower financing costs.

However, Praet said the Council should "remain cautious" given the early stages of economic recovery in the euro zone.

Putting the onus on governments to do more to buoy the recovery, Council members highlighted "the risk of insufficient progress on structural reforms ... as a major downside risk."

In a thinly veiled jibe at a decision by European Union finance ministers last month to give France two more years to cut its deficit to the EU's limit, the ECB said in the minutes that "concerns were expressed about a tendency in recent decisions to ... use flexibility to the maximum extent".

(Additional reporting by Frank Siebelt and Maria Sheahan; Writing by Paul Carrel; Editing by Susan Fenton)